Captive consumption and marketability govern excise duty on unstable Glyoxal intermediate used for exempt drug manufacture.

Central excise duty was held not payable on Glyoxal 20% used captively in the manufacture of exempted drug intermediates because the evidence showed the intermediate stream was unstable, deteriorated on storage, and was not marketable. The record also reflected prior intimation to the Drug Control Authorities that Glyoxal 20% was being used, and the Revenue produced no contrary investigation to support an assumption that only Glyoxal 40% was involved. The operative principle is that a captively consumed intermediate product is not dutiable unless it is shown to be marketable and capable of sale in the market.

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Issues: Whether central excise duty was payable on Glyoxal manufactured and captively consumed in the manufacture of exempted drug intermediates, where the evidence indicated that the relevant intermediate stream was unstable and not marketable.

Analysis: The evidence on record showed that the raw material underwent processing to produce a Glyoxal plant intermediate stream of about 19 to 23%, which was then used in the manufacture of the exempted drug intermediates. The chemical test report indicated that Glyoxal 20% deteriorated on storage and could not be regarded as marketable. The record also showed prior intimation to the Drug Control Authorities that Glyoxal 20% was being used. In the absence of contrary investigation by the Revenue, duty could not be demanded merely on assumptions that only Glyoxal 40% was being used.

Conclusion: No excise duty was payable on the unstable Glyoxal 20% used captively for manufacture of exempted drug intermediates, and the demand was unsustainable.

Ratio Decidendi: A captively consumed intermediate product is not dutiable unless it is shown to be marketable and capable of being sold in the market.

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